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Income Inequality and Economic Growth in the U.S. :A Panel Cointegration Approach

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  • Mark W. Frank

    ()
    (Department of Economics and International Business, Sam Houston State University)

Abstract

The purpose of this paper is to examine the empirical relationship between income inequality and economic growth using U.S. state-level data during the post-war period. We construct a sample of 48 U.S. states with annual observations over the period 1945 to 2001. With this sample the number of time series observations is relatively large and of the same order of magnitude as the number of groups. This allows for the exploitation of new cointegrated dynamic panel data techniques. Our findings indicate that the long-run relationship between inequality and growth is negative in nature, though this negative relationship appears to be larger for low-income states.

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File URL: http://www.shsu.edu/%7Etcq001/paper_files/wp05-03.pdf
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Bibliographic Info

Paper provided by Sam Houston State University, Department of Economics and International Business in its series Working Papers with number 0503.

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Date of creation: Mar 2005
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Handle: RePEc:shs:wpaper:0503

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  1. Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-82, June.
  2. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  3. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  4. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
  5. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  6. Panizza, Ugo, 2002. " Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
  7. Roland Benabou, 1997. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
  8. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  9. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  11. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  12. Donald G. Freeman, 2000. "Alternative Panel Estimates of Alcohol Demand, Taxation, and the Business Cycle," Southern Economic Journal, Southern Economic Association, vol. 67(2), pages 325-344, July.
  13. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  14. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  15. Martinez-Zarzoso, Inmaculada & Bengochea-Morancho, Aurelia, 2004. "Pooled mean group estimation of an environmental Kuznets curve for CO2," Economics Letters, Elsevier, vol. 82(1), pages 121-126, January.
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Cited by:
  1. Cole, Ismail M., 2014. "Short- and long-term growth effects of special interest groups in the U.S. states: A dynamic panel error-correction approach," MPRA Paper 54455, University Library of Munich, Germany, revised 02 Mar 2014.
  2. Muhammad Shahbaz, 2010. "Income inequality-economic growth and non-linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing, vol. 37(8), pages 613-636, July.
  3. Muhammad, Shahbaz & Faridul, Islam & Muhammad Sabihuddin, Butt, 2011. "Devaluation and income inequality: Evidence from Pakistan," MPRA Paper 35522, University Library of Munich, Germany, revised 21 Dec 2011.

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